Do I need an Estate Plan?

Do I need an estate plan? 

This is a trick question.  Everyone has an estate plan.  An individual who dies and does not have a will, the individual has died intestate.  Intestate means the decedent’s estate is subject to laws of the state of residence.  In some cases, this is fine, but I would suggest most of the time an individual or household is best off drafting their own estate plan.

What are the benefits of an estate plan, after all the, the owner of the estate is now dead.  The reason is most, if not all of us who have accumulated any type of an estate, desire to have the estate distributed according to our wishes.  Following are the general objectives of an estate plan.

  • Distributing the estate according to the estate’s owner’s wishes which could include family, other individuals and/or charitable organizations.
  • When beneficial or necessary, having part or all the estate managed for one or more beneficiaries for a period of time.  
  • Having the estate distributed to beneficiaries in the most cost-efficient and time-efficient manner.  As part of this process, whenever possible, it is beneficial to avoiding probate.
    • Note:  Probate is the court approved process of accepting the decedent’s will and distribution of assets after notifying and paying off all creditors of the estate.  Because it is court approved and monitored process, it can be a costly process which ultimately reducing the amount eventually going to estate beneficiaries.

Is it possible to avoid probate?  Yes, following are methods of avoiding probate.  

  • Property owned in joint tenancy with rights of survivorship.  Normally married couples own bank accounts, investment accounts and residence or other real estate in joint tenancy so in the event of one death, the surviving partner owns the entire account without any going thru probate.
  • Life insurance, annuities and qualified retirement plans which have named beneficiaries avoid probate.
  • Transfer on death [TOD] or Payable on death [POD] accounts avoid probate.
  • Property held in a trust avoid probate.  Many households own their property in the form of a living trust which has many benefits including avoiding probate when the trust is distributed to heirs.

All of the above probate avoiding techniques supersede a will.  For example, if the named beneficiary on a retirement plan is different that the individual named in the will, the retirement assets transfer to the named beneficiary.

What documents are normally part of an estate plan?

  • A will is necessary.  Even if an individual or couple has avoided probate by using one or more of the above options, a will distributes property which may not have not have a beneficiary designation.  The will also appoints the administrator of the estate.
  • For individuals or couples with dependent children, a will is necessary to appoint guardians of the children and establish a testamentary trust which manages and distributes estate assets for the benefit of the children according to the estate owner’s wishes. 
  • A durable power attorney [DPA], especially for older individuals is normally an important part of an estate plan.  The DPA allows the individual appointed by the estate owner to manage financial affairs if the owner is not able to do so.
  • At all ages, I would suggest a health care directive is a necessary document.  A health care directive is a legal document in which an individual specifies what actions should be taken by those appointed in the directive to make health care related decisions on behalf of the individual if due to accident or illness, the individual is unable to do so.  This is especially important when individuals such as myself had definite wishes for health care in end of life situations.

To draft an estate plan, the individual or household should consult with an attorney who is experienced in estate planning.  A qualified financial planner will assist with the process by providing information, analysis and implementation of the estate plan. 

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets